The yen fell to the 162-per-dollar level Sunday, hitting its weakest point in nearly 40 years. Although Sanae Takaichi's Japanese government has stepped in with fiscal spending to defend the currency and the Bank of Japan raised its interest rate to 1% for the first time in 31 years, the measures have failed to halt the yen's relentless slide. The market expects the yen to fall as far as 165 per dollar.
According to Bloomberg, the yen-dollar exchange rate climbed to as high as 161.78 yen at one point during trading on the New York foreign exchange market. That marks the highest level in 39 years and six months, since the closing price of 158.30 yen on December 31, 1986.
The currency's surge, once ignited, carried over into Japanese markets Monday, breaking past the 162-per-dollar level during trading. Nikkei noted that if the yen falls to its December 1986 level, there are no reference points available, leaving it in "uncharted territory" with no telling how far it could decline.
Japan has taken various measures to break the weak-yen trend. From April 28 to May 27 this year, the Japanese government injected a record 11.73 trillion yen (about 112.168 trillion won) to defend the exchange rate. The two countries also pursued joint efforts, with U.S. Treasury Secretary Scott Bessent visiting Japan on May 12 to devise countermeasures and holding a video conference with Japanese Finance Minister Satsuki Katayama on May 22. Subsequently, the Bank of Japan's move in June to raise the rate from 0.75% to 1%, while signaling further hikes, was also aimed at countering the weak yen along with Middle East-driven price increases.
However, some point out that the Takaichi government's announcement of plans for Japan's public and private sectors to invest more than 370 trillion yen (about 3,532 trillion won) in strategic fields such as artificial intelligence (AI) and semiconductors by 2040 has overshadowed the currency stabilization measures implemented thus far. "We are seeing a 'bad rate rise,' where the yen weakens even as long-term interest rates climb," said Maki Ogawa, chief analyst at Sony Financial Group. This is because concerns over national debt and a surge in government bond issuance make foreign investors reluctant to buy the yen.
With no sign of the yen's value recovering, Finance Minister Katayama said the same day that "preparations are complete to respond, including with even more 'bold measures.'" However, most observers forecast that the yen will fall further due to the U.S.-Japan rate gap, as expectations grow that the U.S. Federal Reserve will raise rates within the year. "165 yen will be the next support line," predicted Shota Ryu, foreign exchange strategist at Mitsubishi UFJ Morgan Stanley Securities.
